September 2021 Landscape Summary

Dri­ving Forces for a Record Year in DST Equi­ty Invest­ment

Octo­ber 12, 2021

A few months ago, we pro­ject­ed a poten­tial invest­ment of equi­ty into Delaware Statu­to­ry Trust (DSTs) in 2021 could reach $5 Bil­lion.  This would be either in cash direct invest­ments or 1031 tax deferred exchanges. As a mem­ber of the Alter­na­tive & Direct Invest­ment Secu­ri­ties Asso­ci­a­tion (ADISA) we attend­ed the annu­al con­fer­ence recent­ly. Besides the ener­gy cre­at­ed being the first post COVID con­fer­ence there was also excite­ment about the health of the alter­na­tive invest­ment indus­try. Most of the excite­ment was focused on the amount of equi­ty being direct­ed into the Delaware Statu­to­ry Trust (DST) alter­na­tive. All the news seems to be very pos­i­tive on all asset class­es with very few excep­tions. Our pro­jec­tions may have been opti­mistic at that time but now seems to be con­ser­v­a­tive.  There are strong opin­ions that the indus­try could reach $6 Bil­lion in equi­ty.

The big pic­ture. In 2020 (the year of COVID) the amount of equi­ty invest­ed in the DST asset was $3.2B for the entire year. This was down slight­ly from 2019 record year of $3.5 Bil­lion. As of Sep­tem­ber 15, 2021, there has been $4.1 Bil­lion invest­ed as report­ed by the var­i­ous spon­sors. 

The num­ber of spon­sors of DST offer­ings is worth not­ing.  Cur­rent­ly there are 39 spon­sors.  Over the last 4 years that num­ber has remained sta­ble. The num­ber of spon­sors has declined from the hey­days of 2006 where there were 71 spon­sors. 2012 saw the low­est num­ber of spon­sors were only 8 were offer­ing prod­ucts. Dur­ing the great reces­sion there was pres­sures on all aspects of the com­mer­cial secu­ri­tize mar­kets as well as com­mer­cial real estate in gen­er­al. Cur­rent­ly there is a healthy mix of expe­ri­enced spon­sors offer­ings a vari­ety of invest­ment oppor­tu­ni­ties. There are a few new spon­sors mov­ing into the DST space. How­ev­er, many new spon­sors have already been in oper­a­tions for years in oth­er alter­na­tive real estate offer­ings and now are adding DST into their oth­er invest­ment port­fo­lio options.

The asset mix has stayed con­sis­tent with mul­ti­fam­i­ly lead­ing. Of the $4.1 B in equi­ty invest­ed so far this year, $2 B has been in Mul­ti­fam­i­ly. In addi­tion, when you add the oth­er sub sec­tors of res­i­den­tial (Man­u­fac­tured Hous­ing $173 M, Senior Hous­ing $115 M and Stu­dent Hous­ing $63 M) this accounts for $2.4 Bil­lion. Indus­tri­al con­tin­ues to per­form extreme­ly well espe­cial­ly with the lim­it­ed num­ber of prop­er­ties with $525 Mil­lion.  Self-stor­age con­tin­ues to per­form well with $304M Office record­ed $210 Mil­lion and med­ical office $127 Mil­lion.  There is about $50M in a vari­ety of oth­er offer­ings. The only asset class report­ing lim­it­ed inter­est would be hos­pi­tal­i­ty.

Geo­graph­i­cal­ly, Texas had led the offer­ings with 39 offer­ings, Flori­da 28, GA 24, and to my sur­prise Illi­nois with 22. There are sev­er­al states includ­ing Cal­i­for­nia that have dou­ble dig­it offer­ings. Offer­ings that are under the $30M equi­ty amount are on the mar­ket for about a month.  When the offer­ings are over the $100M nat­u­ral­ly these will be avail­able for a longer peri­od which pro­vides investor with more time for plac­ing an invest­ment in a spe­cif­ic asset. 

The num­ber of cur­rent offer­ings is also a some­what flu­id and illu­sive num­ber.  As of Sep­tem­ber 15, 2021, there were 48 active offer­ings and 135 closed offer­ings. The oth­er illu­sive num­ber is the days on mar­ket.  While the aver­age days on mar­ket is 126 (2020 was 200 days) the medi­um is 77 days (2020 164 days). What this indi­cates may be a few trends:  DST that are going full cycle have roll overs that are fund­ing new DSTs; investors are posi­tion­ing their direct cash invest­ments or 1031 replace­ment quick­er.  While this may pro­vide basic num­bers the small the offer­ing nat­u­ral­ly the few­er days on mar­ket.  Also, all cash DST are in lim­it­ed sup­ply. Our Land­scape Sum­ma­ry on DSTnews.org pro­vides week­ly updates to the num­bers of offer­ings.  Behind the num­bers there are many changes on a week­ly basis.  $300,000,000 to $500,000,000 on may come on and off the mar­ket in a few weeks peri­od of time but the over­all num­bers may not reflect all the activ­i­ty on a dai­ly basis.

There have been pres­sures on pro­ject­ed dis­tri­b­u­tion on all asset class­es, espe­cial­ly with the mul­ti­fam­i­ly asset class. While the report­ed over­all aver­age dis­tri­b­u­tion is 4.87% most of the mul­ti fam­i­ly assets are pro­ject­ing returns in the 4% range and some in the high 3% range.  There are many oth­er facets to the mul­ti­fam­i­ly analy­sis that can­not be cov­ered in this short review.  There are a lot of invest­ment dol­lars chas­ing mul­ti­fam­i­ly as well as sin­gle fam­i­ly rental asset sell­er are able to obtain greater acqui­si­tion cost.  Mul­ti fam­i­ly has and appears to con­tin­ue to be a sta­ble asset class cre­at­ing a con­sis­tent cash flow.

The aver­age equi­ty raised in 2021 has been $114 M per week.  This is up from $76 M per week in quar­ter 4 of 2020.  The mar­ket demand is very strong, and sup­ply has caught up with the expec­ta­tion of low­er returns.  Full cycle DST activ­i­ties are sig­nif­i­cant and antic­i­pat­ed to be clos­er to $1.5 Bil­lion this year.  This cre­ates con­fi­dence in the prod­uct offer­ing and investor sat­is­fac­tion.  Investor that are sell­ing are rein­vest­ing in the same mar­ket con­di­tion as they are sell­ing.

The last quar­ter of 2021 will demand finan­cial advi­sors and rep­re­sen­ta­tives to be focused on spon­sor equi­ty cur­rent avail­abil­i­ty and what is about to be released to investors.  We will con­tin­ue to inter­face with the major spon­sors and mon­i­tor oppor­tu­ni­ties for cash investors as well as 1031 tax deferred exchange investors.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031 Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com

DST 1031 con­sult­ing advi­so­ry ser­vices may be offered through: NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC  999 Van­der­bilt Beach Rd, Suite 200  Naples, FL 34108.  Direct:  239–691-8098

Secu­ri­ties may be offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC.  CRD #142927.  NAMCOA® and MSC-BD, LLC are Inde­pen­dent­ly owned and oper­at­ed.